Investing angels of the RGV 

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Investing angels of the RGV 

Mark Kroll jokingly calls himself the leader of a band of fools because he is the president of the RGV Angel Network.  Kroll, who is dean of UTRGV’s Vackar College of Business and Entrepreneurship, explained that that it is one thing to train young entrepreneurs and another to have funding for them to tap into. “What we have not historically had in the Valley is people who have launched scalable enterprises.  Family businesses? Yes.  Large businesses with relatively sophisticated jobs?  No.”

“A key element to launching a scalable business is access to seed money,” said  Kroll.  Before a company has grown big enough to attract venture capitalists, angel investors help them in raising their first quarter million dollars to develop the product or scale up the company.

“Angel investors are people willing to walk on thin air and put some money into a company and probably lose it,” Kroll explained. “This is not where you put your retirement funds. We like to think it is better than going to Vegas.”

Angel investors, known as accredited investors under SEC Rule 501c 3, are individuals (or two spouses) with a net worth of $1 million or else an annual income of $200,000 ($300,000 with a spouse).  An angel investor must acknowledge that they have enough knowledge and experience in financial and business matters to be capable of evaluating the relative merits and risks of any investment.

“You create a formal network where people can see deals and talk together.  Most entrepreneurs don’t have access to qualified investors, and most investors don’t know young entrepreneurs with good ideas.”  Besides meeting SEC rules, network members must be willing to make a minimum investment of $5,000 per year and pay a network membership $500 per year. To date, the RGV Angel Network has 25 members and is aiming for about 45 members, the typical number of the 14 other groups that belong to the Alliance of Texas Angel Networks.

Kroll said with 45 members, an angel network achieves critical mass where they can afford to operate and also have enough diversity among the investors. “Some may have expertise in fields like engineering or agriculture or molecular biology and can inform the discussion of a project.”  RGV Angel Network members include physicians, engineering firm owners, professional investment managers, family business and agribusiness owners, a school superintendent and of course the business school dean. “Fortunately, we have some retirees from different walks of life who have the time to drill down.”

To date, RGV Angels have heard five businesses pitch their plans. Two companies were selected for investments of a total to date of $267,500.  Kroll said a few hundred thousand is typical and allows the investors to see if a business truly has potential.

The network has a proprietary website where the applicants post their information for members to access and read up on the firm before they pitch their company to the group.

“After a pitch, we poll members for follow-up interest and, if it is there, we have an event called the deep dive,” Kroll said, where the investors and entrepreneurs spend quality time asking and answering questions. In November, deep dives were held for two recent pitches: a medical device company in development and a young web marketing services firm hoping to scale up.

Equity money is at stake. “That’s one of the key points in negotiations. The owner want to give up as little of a firm as possible.  What normally occurs is they have a proposition they’ve thought through,” Kroll said.  Don’t picture Shark Tank-type on-the-spot decisions.  “Usually the entrepreneur says something like, ‘I am here to offer 30% of my business for x dollars.’ It’s  more or less a take it or leave it offer.”

“This is speculative stuff. More often than not, these firms are cash-flow negative, or they have no cash flow at all because they are in development,” Kroll said. “You’re not talking about earnings; you are talking about the burn rate:  going through the cash on hand.”

In order to maintain deal flow for the early RGV Angel Network, the companies funded thus far have come from outside the Valley, although Kroll expects to hear the first Valley-based pitch within six months.

When a local network can’t come up with the full amount needed for a business, entrepreneurs can tap into the Alliance network, backed by a local group’s seal of approval, and make presentations to other Texas investors.  “If one network is willing to put several hundred thousand into a project, it adds credibility. “

For more information, see rgvan.org

This story by Eileen Mattei This story by Eileen Mattei appears in the December 2016 print edition of Valley Business Report. appears in the December 2016 print edition of Valley Business Report.

Freelance writer Eileen Mattei was the editor of Valley Business Report for over 6 years. Her articles have appeared in Texas Highways, Texas Wildlife Association, Texas Parks & Wildlife and Texas Coop Power magazines as well as On Point: The Journal of Army History. The Harlingen resident is the author of five books: Valley Places, Valley Faces; At the Crossroads: Harlingen’s First 100 Years; and Leading the Way: McAllen’s First 100 Years, For the Good of My Patients: The History of Medicine in the Rio Grande Valley, and Quinta Mazatlán: A Visual Journey.

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